Optimal Pre-Bidding Strategies in Takeover Contests

Abstract

The paper proposes a model to enable a bidder evaluation of the cheaper strategy for gaining the control of a target company. We assume that on the market there are a number of listed companies for which the company shares are known. The cheaper strategy will be identified by appropriate paths on graph or arborescences on graph that represent either the direct control of the target company or appropriate pyramid schemes. The proposed model allows to identify both the optimal scheme and the minimum operation cost through a problem of quadratic programming multi-objective 01 (which can be linearized). The two considered objective functions identify the costs to be borne by the bidder and the number of involved companies. The problem is deterministic and it is assumed that the takeover success probability is equal to 1. The model allows to identify the range of costs that the bidder has to bear considering the restrictions imposed by the law on takeover bids. The related costs are stochastic, as they depend on the number of subscribers. Moreover, in this paper we deduce conditions that make the solutions of the model optimal for involved actors.